Wednesday, February 7, 2018

Two years into our 50 Doors adventure, we figured that it was much easier to have all our properties close together rather than scattered throughout Ontario. So we focused on Barrie, ON.

We were amazed at the crazy hot market and the speed at which housing prices were going up.

We were hunting for a new property where numbers would work and meet our cash flow requirements.

The idea was to keep repeating the same positive cash flow formula that had worked several times for us already.

It was very exciting that we started to understand the economics of the formula and could tell good deals from bad deals at least within the neighbourhood that we became familiar with.

Rental Income Property

One of the real estate agents who worked with us on a previous deal forwarded this listing. He knew it was a great opportunity and called houses like this "good bones". The structure and concept were great, but the place needed some TLC (aka tender loving care).

An elderly lady who owned the house decided that she no longer needed such a big place and wanted to move into a smaller home.

By the time we were looking at this property, we already owned two similar houses in the neighbourhood. Market was going up like CRAZY.

We got the first property for 185K and now, only two years later, similar homes were selling at 250K - 270K. That's 20% annual appreciation! Very dramatic change in a short time.

Rents went up by a lot as well from $1,200 per month to $1,450 (10% per year).

The increase of $250 in rent, given interest rates of ~3.25%, covered an additional 50K of mortgage. Or, if we put 20% down, it was enough to cover about 60K extra in property price. Meaning, if we got a property at about 240K (185K + 60K), we'd meet our positive cash flow goal.

We instantly saw the opportunity in this property! It was selling under market because it needed some cleaning: the owner smoked inside for three decades. Most local shoppers didn't want to deal with this even at a discount.

Key features:

Freehold town house

Parking on driveway plus 1-car garage

Main level:

Entrance/hall

Large living and bright dining room

Kitchen including fridge, stove

Entrance to a nice, deep backyard with a porch

1/2 bathroom

2nd Floor:

Master bedroom

2nd bedroom

3rd bedroom

Full bathroom

Partially Finished Basement:

Utility room with washer/dryer

Family room with exit to backyard

An old shed takes up most of the backyard. It came with a dead squirrel.

Purchase

Asking price: $225,000

Purchase price: $218,000

Found by a really awesome Real Estate agent Realtor.ca who worked with us on a previous deal

Total Investment

This property required a 55K investment. This is in line with the original plan and includes 10.5K in renovation costs.

Investment Summary

Investment

Amount

Downpayment/Closing

45,214

Capital Improvements

10,448

Total

$55,662

Cashflow and ROI

Initially cash flow was projected to be $350 / month

Actual cash flow averaged at about $200 / month. The shortage is primarily due to two month vacancy in 2017 during renovation.

Net profit including mortgage pay down is approx. $500 / month or 6K per year

ROI is ~ 20% over the two years and 10% annually on average

Year 2014

Year 2015

Year 2016

Year 2017

TOTAL All Years

Average Annualized

Income

Rents (@100%)

17,400

17,463

34,863

17,432

Vacancy

1,800

2,196

3,996

1,998

Total Gross Income

15,600

15,267

30,867

15,434

Expenses

Taxes

2,449

2,864

5,313

2,657

Insurance

1,379

1,480

2,859

1,430

Repairs/Maintenance

743

1,229

1,972

986

Utilities

533

0

533

267

Admin/Advertising

30

0

30

15

Total Expenses

5,134

5,573

10,707

5,354

NOI

10,466

9,694

20,160

10,080

Mortgage - Interest Payment

3,656

4,336

7,992

3,996

Mortgage - Principal Paydown

3,608

4,033

7,641

3,820

Cash Flow

3,202

1,325

4,527

2,264

Net Profit (Loss)

6,810

5,358

12,168

6,084

Cash on Cash Return

5.75%

2.38%

8.13%

4.07%

ROI

12.23%

9.63%

21.86%

10.93%

Appreciation / Equity

Based on MPAC assessments, the value of the property increased by 21K during the last two years. Once we include the equity gain in ROI calculations, return on investment becomes 30% per year:

Total gain including appreciation: $21,000 + $12,168 = $33,168
Total ROI including appreciation: 60% overall and 30% annually.
This property is performing well and as expected. Knocking on wood... spitting three times over my left shoulder.

History

2018

January - tenant is fully caught up on all payments. YAY! 😀

January - notice to end tenancy for non-payment sent (N4). We agree to a catch-up plan.

2017

December - no rent and still not fully caught up with previous shortfall.

October - tenant renews lease for a year! Hurray! Rent increase of 1.5% by $21/month. 👊

September to November - Several fixes needed at the house. The biggest one being installation of a fan in the bathroom to eliminate moisture and potential mold problem. I pre-paid a contractor who never got the work done. Read full story here. The good news is that this led to me finding a great new contractor who finished the job brilliantly and now helps us regularly on various tenant requests.

August - notice to end tenancy for non-payment sent (N4). We agree to a catch-up plan.

July - tenants is short on rent due to change in career and taking on study courses.

June - dryer dies. Got new dryer.

2016

October - Washer breaks. Got new washer.

September - New awesome tenants move in. Rent $1,450. 💪

September - New roof & new floors in bedrooms. Replaced carpet with laminate. Unit looks and feels gorgeous!

August - A tenant has been recommended by one of the neighbours. Very nice family! They agreed to wait until renovation is done and helped us picking colours for their new home.

July - One of the roommates finds a job in another city, the tenants move out a month early. Lots of garbage left in the garage and throughout the house. We discover a picture of a XL male organ on the fridge... in permanent marker. 👿

May - Young professionals and the student duct-taped an old window air conditioner to a 2nd floor window above the front door entrance. This was a disaster waiting to happen! Luckily, we mounted the AC unit properly before anything bad happened.

March - Two young professionals and a student move in. Six months term @ $1,350 rent. This was a discount of $100 from the $1,450 rent we aimed for. The reason this was good for us was because the tenants could move in right away on the 1st, so we wouldn't lose a month of rent. We planned to increase rent at the end of their term.

February - Major cleaning - 30 years of smoking - and minor fixes. This was when I discovered that if you try to wash smoked ceilings, you get rained on with brown nicotine drops. Cost < $500.

Hi! I'm Anna. I live in Toronto, ON Canada. I started my 50-doors real estate journey in May 2014, when my husband and I decided to go after real estate cash flow.
I finished RichDad and REMentor coaching programs and love being hands-on investor.
I hope that 50-doors blog and my experiences will help you, if you are aiming to build real estate cash flow in Canada as well.
Besides real estate, I enjoy reading biographies of successful people, meditating, practicing karate, watching action movies, and spending time with my family and friends.
If you'd like to connect, please email anna@50doors.com. I'd love to meet you!

Monday, February 5, 2018

Everyone makes mistakes. Unfortunately, this case study shows how my bad judgement and a poor choice of tenant resulted in two years of stress and big losses. The lesson I learned is - if you make a mistake, find the courage to fix it fast. I dragged my feet with the eviction for too long and, literally, paid for it.

Rental Income Property

We were lucky to have met the seller, as she stayed at the house for a couple of months being our first tenant while finalizing the closing of her new home.

The seller shared that she got the house at 20 and lived in it for 28 years while raising two amazing children.

Based on her words, the schools and neighborhood were amazing. Neighbours were great and supporting: a lovely retired couple on one side, a professional woman and her son on the other side; and a couple with a sweet little girl across the street.

The owner was certain that whoever would move in here next, would be happy.

Total Investment

This property required a 95K investment, of which a big chunk of 40K was spent on renovation.

Initial expectation for renovation cost was 10-15K. Unfortunately, we made lots of mistakes choosing the right tenant and sub-contractors, which led to a much higher spending than planned.

Investment Summary

Investment

Amount

Downpayment

$47,687

Closing Costs

$8,857

Capital Improvements

$39,121

Total

$95,665

Cashflow and ROI

Initially cash flow was projected to be $250 / month

Property has been barely cash positive over the first three years because of continuous tenant issues.

Cash flow averaged $43 / month or 518K per year

Thanks to mortgage pay down, net profit is approx. $300 / month or 3.5K per year

Cash on cash return is practically 0% so far

ROI is 4% over the four years and 11% annually on average

Year 2015

Year 2016

Year 2017

TOTAL All Years

Average Annualized

Income

Rents (@100%)

2,900

17,400

20,000

40,300

13,433

Vacancy/Non-Payment

1,365

2,250

3,615

1,205

Total Gross Income

2,900

16,035

17,750

36,685

12,228

Expenses

Taxes

585

2,395

3,003

5,983

1,994

Insurance

311

1,512

1,406

3,229

1,076

Repairs/Maintenance

446

170

3,745

4,361

1,454

Utilities

373

287

1,641

2,301

767

Admin/Advertising

45

0

0

45

15

Total Expenses

1,760

4,364

9,795

15,919

5,306

NOI

1,140

11,671

7,955

20,766

6,922

Mortgage - Interest Payment

796

4,712

4,594

10,102

3,367

Mortgage - Principal Paydown

683

4,160

4,268

9,111

3,037

Cash Flow

-339

2,799

-907

1,553

518

Net Profit (Loss)

344

6,959

3,361

10,664

3,555

Cash on Cash Return

-0.35%

2.93%

-0.95%

1.62%

0.54%

ROI

0.36%

7.27%

3.51%

11.15%

3.72%

Appreciation / Equity

Based on MPAC assessments, the value of the property increased by 33K during the last four years. Once we include the equity gain in ROI calculations, return on investment becomes 15% per year:

Total gain including appreciation: $33,000 + $10,664 = $43,664
Total ROI including appreciation: 46% overall and 15% annually.15% ROI per year is pretty good! This shows you that even in an absolutely horrible situation tenant-wise and after a streak of bad decisions, overall return can be fairly OK thanks to mortgage pay down and market appreciation. I got lucky!Appreciation is like lottery. Hence, we can't bet on it. Therefore, selecting a good tenant is a MUST going forward.

History

2017

Spring 2018 - Tenant is behind on rent. Got an eviction court order and agreed to a payment ctach up plan with the family. Yay! They are fully caught up on past rent now. Hooray!! 👍

2015

December - real tenants moved it: a couple with two young children. Rent $1,450.

October to end of November - Previous owner stayed as our first tenant for two months while she was looking for a new home. We agreed to a discounted rent of $900. At the time, we had several other projects under way and we were running around like headless chicken, so getting partial rent immediately after closing was very helpful.

Hi! I'm Anna. I live in Toronto, ON Canada. I started my 50-doors real estate journey in May 2014, when my husband and I decided to go after real estate cash flow.
I finished RichDad and REMentor coaching programs and love being hands-on investor.
I hope that 50-doors blog and my experiences will help you, if you are aiming to build real estate cash flow in Canada as well.
Besides real estate, I enjoy reading biographies of successful people, meditating, practicing karate, watching action movies, and spending time with my family and friends.
If you'd like to connect, please email anna@50doors.com. I'd love to meet you!

Thursday, February 1, 2018

If you ever wonder what it is like to own a rental property, read on! This post will tell you how we got a triplex, what the numbers look like and what sort of property management adventures we ran into over the past few years.

Rental Income Property

Like many other homes on this quiet old street, the house has a gorgeous flower garden around it. You can sit down on a wooden porch and listen to the church bells ringing on the hour in the distance not too far. I love the peace and tranquility.

Key features:

Triplex:

1 bedroom in a side wing comes with a small back yard

2 bedroom on the main floor comes with a nice back yard, washer/dryer/dishwasher, and lots of storage room in the basement

2 bedroom on the second floor has an incredible feel to it, thanks to mezzanine like ceilings

Hi! I'm Anna. I live in Toronto, ON Canada. I started my 50-doors real estate journey in May 2014, when my husband and I decided to go after real estate cash flow.
I finished RichDad and REMentor coaching programs and love being hands-on investor.
I hope that 50-doors blog and my experiences will help you, if you are aiming to build real estate cash flow in Canada as well.
Besides real estate, I enjoy reading biographies of successful people, meditating, practicing karate, watching action movies, and spending time with my family and friends.
If you'd like to connect, please email anna@50doors.com. I'd love to meet you!